First PPP-funded high-speed rail construction starts

Updated 2016-12-27 09:26:34 Global Times

Investment platform vital for channeling liquidity into infrastructure: experts

China's first Public-Private Partnership (PPP) project in the railway sector began construction in East China's Zhejiang Province, while experts noted that issues such as ownership, pricing power and operation still need to be solved.

The 269-kilometer-long rail that connects Hangzhou, Shaoxing and Taizhou in Zhejiang Province is the first PPP-funded high-speed railway project controlled by private investment, according to a statement posted on the website of China Railway Fifth Survey and Design Institute Group Co on Friday.

The investment for the venture stands at 44.9 billion yuan (.46 billion), of which private investments account for 51 percent, the statement noted.

Private investors including Fosun Group, Zhejiang Wanfeng Auto Holding Group and Zhejiang Geely Holding Group will have a franchise period of 30 years, four years for construction and the rest for operation, the Xinhua News Agency reported.

The project is one of eight demonstration projects of social investment in the railway sector, according to an announcement by the National Development and Reform Commission (NDRC) in January.

Part of the reason these projects were shortlisted by the NDRC is that they are high-value investment targets, Sun Zhang, a transport professor at Tongji University, told the Global Times Monday.

"The railway line, located in the eastern coastal area, has good prospects for making a profit," Sun said, noting that the profitability is linked to the population density and income level of the areas it passes through.

"The rail network under the administration of the Shanghai railway authority, for instance, accounts for one-sixth of the national total mileage but serves one-fifth of the country's customers," he explained.

In Beijing's Daxing district, a new airport line started construction on Monday. The 41.36-kilometer railway is the first project in Beijing's railway transportation sector to attract social investors in investment, construction and operation management through a PPP model, a separate Xinhua report said.

The social investors include a conglomerate of eight companies, representing an investment of around 15 billion yuan, according to Xinhua.

"Driven by a shortage of attractive investment targets, large flows of private capital are leaving the real economy and entering the virtual economy, causing the real economy to splutter and increasing financial risks. Against this backdrop, it is vital for the government to have platforms such as PPP that channel some liquidity back to infrastructure projects such as railways," Dong Dengxin, a professor at Wuhan University of Science and Technology, told the Global Times Monday.

The latest data from the National Bureau of Statistics showed that private fixed-assets investment totaled 33.11 trillion yuan in the first 11 months of the year, an increase of 3.1 percent year-on-year. During the same period, the volume of private fixed-assets investment represented 61.5 percent of the national total, declining 3.1 percentage points year-on-year.

Cooperation mode

Sun noted that clearly established ownership is very important for these new railways, given China Railway Corp's large volume of debt.

China Railway's debt volume totaled 4.21 trillion yuan by the first half of 2016, domestic news portal nbd.com.cn reported in September, citing the company's financial report.

"Investors should only be responsible for the very section of the railway they want to invest in, and they should not be inheriting liabilities for any other sections, which are substantial," Sun said.

Pricing power is another important issue that needs to be solved, Dong said.

"While private capital in this project has the controlling stake, the pricing mechanism should also take into consideration the railway's nature of being an infrastructure serving for public good. There will be some mechanism of checks and balances being developed as the construction of the railway progresses," he explained.

Undisturbed connectivity and independence will be the dominating features for PPP-funded railways, Sun said.

"When the railway is completed and put into operation in the future, trains belonging to any company could use it, being part of a sprawling network across the whole country, but there will also be a mechanism determining how much the user of the road should pay the owner," he said.

Sun noted that options for future operations are open. For instance, if investors think they are not experienced in operating a railway, they could hire the authority to operate the rail on their behalf and reap the rewards.

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